We are not accountants or attorneys, so we are not giving professional advice on the subject of auto insurance. Nonetheless, since you are a Financial Advisor, serving the whole client, we believe you need to know something about automobile insurance and the role it plays in the overall risk management plan of your HNW/UHNW clients.  

Who is liable if a thief steals a car belonging to one of your clients and causes a serious auto accident which results in significant injuries to occupants of the other car? 

Fortunately, your client isn’t. Usually, the owner, your client, will not be responsible for damage to the other car or injuries to its passengers. However, your client will be liable for the damage to their own car. Therefore, to have it repaired, he or she will have to file a claim with their auto insurance carrier.

Figuring out the insurance your clients need in this field isn’t easy. It’s important to remember that the automobile insurance industry is regulated by each of the fifty states, so there are fifty different sets of laws administered by state commissioners of insurance. You can follow this link to a national interactive map: www.naic.org/state_web_map.htm. Click on your state; this will take you to the office of the insurance commissioner in your state. [1]

It's critical for your clients to understand they are only covered for liability or damage involving their cars and only to the dollar limit stated in the policy. Consider this: your client Ms. Jones rams another vehicle and causes death or serious bodily injury to an occupant of the other car. A lawsuit is filed against her. If the court hands down a judgment of $10,000,000 dollars to the defendant, the standard auto insurance policy will usually pay $100,000 and no more. Who pays the rest? Your client, Ms. Jones. [ii]

Do your clients know the liability limits of their auto insurance policies? If they cause a serious accident, they will need a lot of insurance, and that is not the time to discover they don’t have enough. We strongly recommend you ask your clients if they have an “umbrella liability policy.” Many will have such a policy, but does it provide enough coverage? The wealthier your client is, the more they need. Several insurance companies who specialize in providing insurance to HNW/UHNW clients will write umbrella liability policies up to $100 million dollars. [iii]

Another key issue is uninsured motorist coverage. It is against the law to drive a car you own without proper insurance. It’s against the law to exceed posted speed limits too, but that doesn’t stop people from speeding. The National Association of Insurance Commissioners estimates 13% of drivers, nearly one in eight, are uninsured. [iv]

Consider this scenario: an uninsured motorist runs a red light, crashes into the car of one of your wealthy clients and leaves him seriously injured. He spends two weeks in the hospital and upon release, must pursue a course of physical rehabilitation for nine months. His medical costs will be enormous. If he has a proper uninsured motorist coverage in his auto policy, his insurance company will pay all of his costs subject to exclusions in the policy.

Can your client sue the driver who hit him and didn’t have insurance? Of course. But if a driver doesn’t have car insurance, he probably doesn’t have anything which can be seized if you receive a judgment in your favor from the court. So your clients absolutely must have top-notch uninsured motorist insurance

Are liability and protection of their wealth a subject your HNW/UHNW clients are concerned about? Yes, they are. In a survey of wealthy households done for ACE, the parent company of Chubb Insurance, “82 percent of the respondents believe their wealth makes them an attractive target for liability lawsuits…” [v]

If your client is found liable for an act which has seriously harmed another person, who do you think the jury is going to be sympathetic to? A wealthy client or the person in the wheelchair who really and truly can no longer walk because your wealthy client was negligent. I think you know the answer.

 

To learn more about this topic, register for our Capitalizing on the Insurance Opportunity course. 

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Resources:

[1] https://www.naic.org/state_web_map.htm

[ii] https://www.bogleheads.org/forum/viewtopic.php?t=184090 *Blog managed by Jack Bogle, retired Founder and Chairman of Vanguard Funds

[iii] [v] https://www.ajg.com/media/76428/Private-Client-case-studies-ACE-Whitepaper.pdf

[iv] https://www.naic.org/cipr_topics/topic_uninsured_motorists.htm

 

Contributing Writer: Subject Matter Expert Charles McCain